Review By Dilip Davda on Jan 3, 2019
• KP group coming out with second SME IPO after migration of first one to main board.
• KPIG has two verticals of operations i.e. IPP and CPP.
• Company is able to realize Rs. 6.58 per unit from third party PPAs.
• Proposed 25MW project will be fully on stream by July 2019 end.
KPI Global Infrastructure Ltd. (KPIG) is KP Group Company engaged in solar power generation verticals at its "Solarism" park. First company of the group KP Energy, which came with SME IPO in February 2016, has already migrated to main board in October 2018 and rewarded investors handsomely with two bonus issues during these period. KPIG operates under two verticals i.e. IPP (Independent Power Producer) and CPP (Captive Power Producer). It is also generating income from lease rental of owned land as well as AMC of solar projects. Under IPP vertical it owns project and generates revenue from power supply charges with third party PPA. While under CPP it generates revenue from sale of power plant units to captive consumers and lease rental for land and AMC contracts.
It has 208.42 acres of land for its solar power projects at Solarism Park, Bharuch. For its operational 15MW unit 1 (57.81 acres) it has entered into PPA with companies like Mafatlal Industries, Meghamani Organics, Best Paper Mills etc. Having established proven track record from first unit of 15MW, it is now going for second unit with 25 MW capacities. For the proposed 25MW Unit 2 (96.87 acres) with a capex of Rs. 132.04 crore, it has received term loan from PFC to the tune of Rs. 86 cr. Balance funding it planned from internal accruals and IPO proceeds. It has tied up 15 years PPA with corporate like Larsen & Toubro, UPL Ltd. etc. For unit 2 it has entered into PPA at 7% discount to Discom levy. (This is Rs. 6.58 per unit at present)..
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its ongoing 25MW solar power project and general corpus fund needs, KPIG is coming out with a maiden IPO of 4992000 equity shares of Rs. 10 each at a fixed price of Rs. 80 per share to mobilize Rs. 39.94 cr. Issue opens for subscription on 08.01.19 and will close on 11.01.19. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 27.63% of the post issue paid up capital of the company. Issue is solely lead managed by Vivro Financial Services Pvt. Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Post issue, promoter's holding will be 60.9%.
Having raised initial equity at par, it issued further equity in the price range of Rs. 40 to Rs. 140 between March 2018 and January 2018 and then at a price of Rs. 70 per share in September 2018. It has also issued bonus shares in the ratio of 1 for 1 in March 2018. Average cost of acquisition of shares by the promoters is Rs. 14.85 per share. Post issue, its current paid up equity capital of Rs. 13.08 cr. will stand enhanced to Rs. 18.07 cr.
On the financial performance front, for the last three fiscals, KPIG has posted turnover/net profits of Rs. 27.51 cr. / Rs. 7.68 cr. (FY16), Rs. 26.03 cr. / Rs. 8.12 cr. (FY17) and Rs. 31.58 cr. / Rs. 11.41 cr. (FY18). For first half of FY19 it has earned net profit of Rs. 3.87 cr. on a turnover of Rs. 18.21 cr. Thus on pure arithmetic, first half net is much lower. Due to straight line method of depreciation, it has higher differed tax provisions According to management, first half it has lean period due to lower radiation of Sun light. It gets optimum radiation in second half and thus major profits come in this period. Its Solarism Park is situated at the higher radiation location having cool climate.
For last three fiscals it has posted an average EPS of Rs. 8.69 and an average RoNW of 28.05%. Issue is priced at a P/BV of 1.70 on the basis of its NAV of Rs. 47.02 as on 30.09.18 and at a P/BV of 1.43 on the basis of post issue NAV of Rs. 56.14. While on the basis of FY18 workings, asking price is at a P/E of around 12.7, if we annualize latest earnings and attributes it on fully diluted post issue equity then asking price is at a P/E of around 18.7 Management is confident of maintaining the growth pattern as proved by track record of last three fiscals.
COMPARE WITH LISTED PEER:
As per offer document, it has no listed peers to compare with.
MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from this merchant banker. In the past Vivro brought 1 main board and 1 SME IPO that opened at a premium ranging from 20% to 59.6% on the day of listing.
First Company of the group KP Energy migrated to main board and has rewarded investors handsomely. This company is having different model of business and having a niche play in solar power generations with IPP and CPP verticals. Despite third party PPA, it has been funded by PFC for Unit 2 and this is perhaps happening for the first time (as claimed by the management). With onset of current project by July 2019 end management is confident of maintaining its growth pattern. Considering these aspects, investors may consider investment for long term.
Review By Dilip Davda on Jan 3, 2019
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
The KPI Global IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if KPI Global IPO worth investing. The KPI Global IPO Note sets the IPO expectations in systematic way which tells you if KPI Global IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in KPI Global IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.
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